The European Union's monetary affairs chief urged member states to agree on tough budget reforms today after some countries said enthusiasm for far-reaching change was waning.
He made his comments before euro zone finance ministers met in Luxembourg to complete an overhaul of EU budget rules and agree on a report for EU leaders on how to make the rules tougher, to prevent a new sovereign debt crisis.
"This is now the moment of truth for the EU member states whether they are genuinely for reinforced economic governance or not," economic and monetary affairs commissioner Olli Rehn said.
He underlined the need for reforms that ensure budget discipline is enforced and debt is kept in check, adding: "Passing them is the litmus test for being serious about economic governance."
Ministers were expected to review the outcome of this month's Group of Seven and International Monetary Fund meetings in Washington, including the likelihood of "currency wars", and prepare for a G20 finance ministers' meeting in South Korea.
The euro has jumped 8 per cent against the dollar in the last month and 18 per cent since June, raising fears the currency region's exporters will increasingly struggle.
But the main focus today Monday was likely to be deficit sanctions, the biggest overhaul of the fiscal rules underpinning the euro since its creation in 1999.
Groups of countries led by Germany and France have different views on how much say the 16 euro zone finance ministers should have in deciding sanctions for deficit and debt limit offenders.
The resolve to toughen fiscal rules may be waning in some countries because any immediate danger of a full-blown sovereign debt crisis is widely thought to have passed, despite the problems suffered by Greece this year.
"A lot of member states are getting cold feet now, but during the crisis this spring, we saw what the sovereign debt crisis can do," said Dutch finance minister Jan Kees de Jager.
Mr Rehn sought to play down the reforms as he arrived for the talks on a cold morning, saying: "It maybe be very chilly here but I don't yet see any cold feet."
The executive European Commission presented last month a set of proposals to impose sanctions on euro zone countries breaking the Stability and Growth pact, the EU fiscal rulebook, much earlier and with less ministerial discretion.
Germany, the Netherlands and Nordic countries want sanctions imposed almost automatically on countries that do not abide by the EU's 3 per cent of GDP limit on budget deficits and public debt limit of 60 per cent of GDP.
Under the Commission's proposals, only a qualified majority of EU finance ministers could stop the imposition of an interest-bearing deposit, a non-interest bearing deposit or a fine on the offending country if it keeps overspending.
But euro zone sources say some would like to stick to an arrangement where the European Council - the EU member states' governments - has to make a political decision each time. This camp is led by France and includes Spain and Italy.
The Commission also proposed that countries which have debt higher than 60 per cent should reduce it by one twentieth of the excess over the limit annually.
EU sources said the ministers' report to EU leaders would not mention any numerical value, just an agreement that debt would have to decline at a "sufficient pace". Otherwise the country would face disciplinary action entailing sanctions.
The sources said there was also an idea to link the pace of the reduction to whether or not a country had a budget close to balance or in surplus.
A further hurdle was a proposal for sanctions on countries that do not adjust their excessive macroeconomic imbalances as suggested by the Commission, which some countries think would give the EU executive too much say over national policies.
The ministers were also seeking agreement on a formulation of the Commission's proposal that EU countries should inscribe prudent fiscal rules into national legislation.
Finally, the ministers were expected to discuss how much to commit themselves to creating a permanent mechanism for crisis resolution in the euro zone in the future.
Reuters